Chicago Public Schools CEO Forrest Claypool announces the release of the proposed $5.4 billion operating budget for 2017 that assumes the Chicago Teachers Union will accept a contract similar to one a CTU bargaining team soundly rejected earlier this year. Chief Education Officer Janice Jackson is with Claypool. (Nancy Stone / Chicago Tribune)

Chicago Public Schools CEO Forrest Claypool announces the release of the proposed $5.4 billion operating budget for 2017 that assumes the Chicago Teachers Union will accept a contract similar to one a CTU bargaining team soundly rejected earlier this year. Chief Education Officer Janice Jackson is with Claypool. (Nancy Stone / Chicago Tribune)

Chicago Public Schools on Monday unveiled a $5.4 billion operating budget proposal that assumes the Chicago Teachers Union will accept a contract similar to one a CTU bargaining team soundly rejected earlier this year.

CTU President Karen Lewis was quick to say the district is wrong to think her union will come around on the contract offer from January.

"Our bargaining team said no to (that offer), so I don't know why they keep thinking that's going to fly. If it didn't fly in January, why would they think it (will) fly now?" Lewis said during a news conference at union headquarters.

CTU President Karen Lewis responds to the proposed $5.4 billion operating budget that assumes the Chicago Teachers Union will accept a contract similar to one a CTU bargaining team rejected earlier this year. Aug. 8, 2016. (Michael Tercha / Chicago Tribune)

CTU President Karen Lewis responds to the proposed $5.4 billion operating budget that assumes the Chicago Teachers Union will accept a contract similar to one a CTU bargaining team rejected earlier this year. Aug. 8, 2016. (Michael Tercha / Chicago Tribune)

In addition to betting it can reach an agreement with one of the city's most powerful unions after more than a year of failed talks, CPS also put forth a host of "management reforms and efficiencies" to present a balanced budget in the face of a budget shortfall the district had pegged at $300 million.

"Without absolute certainty on our labor costs, we have to make, and do make, rational assumptions," CPS CEO Forrest Claypool said. "I think it's fair to assume that the Chicago Teachers Union will understand that potential framework is still a fair framework to deal with."

The district's contract proposal phased out the district's longstanding practice of picking up the bulk of teacher pension contributions and increased union insurance premiums in exchange for a series of pay hikes over four years and a promise of no economic layoffs. Union leaders have long said ending the pension pickup could be cause for a strike.

"At some point, a line has to be drawn in the sand. Chicago teachers do not seek to go on strike. We want to return to clean, safe, resourced schools. We want a fair contract," Lewis said. "We will not accept an imposed pay cut."

The union said its members will report to school on time this fall, and Lewis declined to be pinned down about the possibility of a strike. "We're not going to go an entire year without a contract, I will tell you that much," she said.

The district said its proposed budget is $232 million less than last year's and covers what CPS said was a $300 million shortfall that still existed after the state passed education funding measures in June.

Those measures allowed the school board to impose a $250 million property tax increase to cover teacher pension payments, and sent $131 million of new grant revenue to the district.

The district also is counting on about $200 million in pension relief that hinges on lawmakers striking a broad agreement on pension reforms. Claypool said budget cuts would have to be made if lawmakers don't come through, but he expressed confidence the money would arrive.

"We take their word as law in good faith, and believe they will do what they promised to do," Claypool said. "The reason they agreed to do (pension relief) was to protect Chicago Public Schools classrooms, which would be cut significantly if we were not able to get that first step toward pension parity."

Other budget assumptions include an estimated $31 million in savings CPS says it can achieve through updated contracts with other labor unions that work for the district.

The district said it would save another $15 million through changes to school schedules, an effort it abandoned last year. Changes in accounting procedures for vacant school-based positions would save another $58 million, the district said.

"Today marks the return to financial stability for the coming school year," Claypool said, adding that the budget was "balanced without gimmicks or operational borrowing."

But the district, which has a debt load of nearly $7 billion, will still continue to rely on borrowed money.

In addition to $150 million in bonds the district recently sold on the private market to fund construction projects and other expenses, CPS also plans to leverage revenue from a recently enacted property tax levy to borrow hundreds of millions of dollars for additional school construction projects.

The district on Monday also put forth a proposed $338 million capital budget that would be financed partly with $233 million in borrowing backed by revenue from that property tax. District officials also made clear the system could take on additional debt to pay for a supplemental capital budget set to come out this fall.

Beyond long-term borrowing, the district again acknowledged Monday that it needs a short-term loan for cash to stay afloat this year.

Claypool said the district was still negotiating that short-term line of credit, though he did not specify the amount to be borrowed. District budget officials later declined to answer questions about the district's cash flow balance and projections.

Individual school budgets that went to principals last month continued cuts made in the middle of the past school year. The district says the $2.8 billion going directly to schools is about $140 million less than schools got last September.

Last week, the district said it was laying off more than 500 teachers and 500 school-based workers, many because of enrollment shifts. There are 1,000 teaching vacancies in the district and the teachers who were laid off will be able to apply.

The Chicago Board of Education is scheduled to vote on the operating budget Aug. 24.

Lewis said the union's main bargaining team will meet Tuesday to go over the budget and made clear the union expects to still have a say in the district's spending plans.

"We do not know if Mayor (Rahm) Emanuel can stand another teachers' strike, especially at a time when confidence in his leadership is at an all-time low and the city is in an uproar over another police shooting of another unarmed African-American youth," she said. "Do not force our hand."